Inflation held up by steeper food prices
INFLATION is widely expected to balloon past five per cent in the coming months, after rising food costs held the consumer price index to a two-and-a-half year high of 4.5 per cent in May.
May’s steady rate on the CPI “represents just a temporary pause in an upward trend which could take inflation to 5.5 per cent or above,” said Jonathan Loynes of Capital Economics yesterday, in a note.
“Food inflation could climb to around 14 per cent by the end of this year, adding roughly another one per cent to the overall inflation rate,” Capital Economics expects.
A post-holidays reduction in airfares came in weaker than expected, while food prices jumped 1.3 per cent between April and May, the Office for National Statistics announced yesterday.
“With major energy suppliers announcing price rises in recent weeks, we expect this to make an upward contribution to inflation in coming months – although Scottish Power’s price rises do not take effect until August,” added Charles Davis of the Centre for Economics and Business Research (CEBR).
The retail price index (RPI) also held at 5.2 per cent in May, unchanged from April.
The tax price index (TPI) edged down very slightly, from 4.9 per cent in April to 4.8 per cent last month.
A basic rate taxpayer needs a savings account of 5.63 per cent per annum just to beat inflation, the website Moneyfacts revealed.
Just one ISA negates the current effects of inflation, while higher rate taxpayers have no inflation-beating accounts available to them.
“As the government’s two per cent CPI target slips further beyond the Bank of England’s grasp, it is the nation’s savers who are left suffering the consequences of eroding spending power with little hope of rescue,” said Sylvia Waycot of Moneyfacts.
Meanwhile, Spanish CPI came in at 3.5 per cent in May, official data revealed yesterday.
Inflation figures for the whole Eurozone region are expected on Thursday.